Welcome to the June 2025 Newsletter. This month, we’re discussing the economy, employment, financial terminology, and more.
Summary
On May 15, Josh Brown, CEO of Ritholtz Wealth Management in New York City, said on CNBC, “The NASDAQ 100 (QQQ) recently went up 25% while the S&P 500 Index went up 18%. A 25% rally in the QQQ is an incredible rally – it doesn’t happen randomly – it happened because Meta, Microsoft, Apple, and other tech companies had great first quarter earnings.”
“Now what could be the monkey wrench in this? The answer is if all of a sudden, the economy starts getting disappointments in employment/unemployment data. I think that is a bigger risk than higher inflation and rising interest rates.”
“The initial jobless claims, as published on May 15, were unchanged at 229,000. The unemployment data is not falling apart. As long as people have jobs and are spending money, this stock market rally can continue. The economy and corporate profits are not as bad as people thought they would be.”
Quote of the Day
Harry Markowitz, (1927 to 2023) was an American economist who, in 1952, published his innovative mathematical theory of investing. Later, this became known as the Modern Portfolio Theory (MPT).
MPT assumes investors are risk-averse, meaning that when given two portfolios that offer the same expected return, investors will prefer the less risky portfolio. Thus, an investor will take on increased risk only if compensated by higher expected returns. Conversely, an investor who wants higher expected returns must accept more risk.
MPT’s key insight is that an individual asset’s risk and return should not be assessed by itself, but by how it contributes to the portfolio’s overall risk and return. In his mathematical model, Markowitz assigns an asset’s “standard deviation” as the appropriate measurement of risk.
Markowitz was quoted saying, “I would never be 100% in stocks, or 100% in bonds, or 100% in cash. Modern Portfolio Theory recommends an investor diversify with a balance of stocks, bonds and cash that is suitable for their risk tolerance.”
At Lorenz Financial, we strongly believe in diversification.
Pop Quiz
What are the percentage contributions for each category below that make up the total US gross domestic product (GDP)?
Total manufacturing in the US is what percent of our economy’s GDP?
The answer to this month’s Pop Quiz is at the bottom of the newsletter.
The Economy
Employment
Total U.S. nonfarm payroll employment rose by a strong 177,000 in April. The official unemployment rate, U-3, remained the same at 4.2%. The February and March 2025 combined employment numbers were revised lower by 58,000 than previously reported.
Chart 1 below is based on the Bureau of Labor Statistics official unemployment rate, U-3.
Chart 2 below shows the two-year trend of employment growth.
The Job Openings & Labor Turnover Survey (JOLTS) decreased to 7.2 million open jobs across the country as of the last business day in March. It was 7.7 million in the prior month. Even though the October and November JOLTS data showed an increase in open jobs, the 10-year chart below shows the downward trend continues in open jobs since March 2022.
The seasonally adjusted Total U.S. Unemployment Rate, U-6, decreased to 7.8% in April as compared to the prior month. There were 6.6 million people unemployed in April, age 16 and older. Last month it was 7.2 million people unemployed.
April Unemployment Rates by Education Level
Average hourly earnings of all employees on private nonfarm payrolls were up 3.8% in April compared to a year ago. It was the same the previous month.
| Less Than High School Diploma | 6.2% |
| High School Graduate, No College | 4.0% |
| Some College, Associate's Degree, or Skilled Trade Degree | 3.7% |
| Bachelor's Degree or Higher | 2.5% |
Leading Economic Indicators (LEI) sponsored by The Conference Board
The LEI decreased 1.0% in April. The Conference Board’s spokesperson said, “Most components of the index deteriorated. Notably, consumers’ expectations have become continuously more pessimistic each month since January 2025. Also, the contribution of building permits and average working hours in manufacturing turned negative in April. The Conference Board currently forecasts US real GDP to grow by 1.6% in 2025, down from 2.8% in 2024.”
Gross Domestic Product (GDP)
The Bureau of Economic Analysis said the second estimate for GDP in the first quarter of 2025 decreased at an annual real rate of 0.2%. GDP for the fourth quarter of 2024 was +2.4%.
The decrease in the first quarter GDP reflected a substantial increase in imports, which are a subtraction in the GDP calculation. For the year 2024, GDP increased 2.8% and grew 3.2% in 2003.
Labor Productivity – Quarterly
Annual inflation decreased to 2.1% as measured by the Personal Consumption Expenditures (PCE) price index for April. The revised annual March number was 2.3% during the prior 12-months and 2.7% in March. The core PCE price index, which excludes food and energy, decreased to 2.5% in April. It was 2.6% in March and 3.0% in February.
Inflation
Annual inflation decreased to 2.1% as measured by the Personal Consumption Expenditures (PCE) price index for April. The revised annual March number was 2.3% during the prior 12-months and 2.7% in March. The core PCE price index, which excludes food and energy, decreased to 2.5% in April. It was 2.6% in March and 3.0% in February.
University of Michigan Consumer Sentiment
Consumer sentiment in May was unchanged at 52.2 compared to April ending four consecutive months of decline. See the 10-year chart below.
This month’s results reflect a decline in personal finances and improvements in expected business conditions.
Mortgage Rates and Average Existing Home Prices
As of May 30, 2025, the average 30-year fixed-rate mortgage had an interest rate of 6.97%, compared to 6.81% last month. The average 15-year fixed-rate mortgage had an interest rate of 6.23%, compared to 6.15% last month.
The median existing-home sale price increased in April 2025 to $414,000 from $403,700 in April 2024. The volume of existing home sales decreased 0.5% compared to a year earlier, according to the National Association of Realtors. The inventory of existing homes for sale dramatically increased by 9% to a 4.4-month supply in April. The desired supply target is 6 months.
The U.S. Public Debt as Issued by the Treasury Department as of May 30, 2025, was:
$36,914,000,000,000.
Last month it was $36,791,000,000,000.
Important Dates in March
THE STOCK MARKET
Commentary
On May 22, Josh Brown, CEO of Ritholtz Wealth Management in New York, said on CNBC, “As our outrageous nation debt continues to increase, the U.S. Treasury will be required to issue more and more Treasury bills, notes, and bonds to pay for the federal government spending that exceeds revenue.”
Question: So, how do you get people and institutions who buy Treasury debt to buy more? Answer: The yield on Treasury debt must go up to motivate Treasury buyers to buy more.
Question: How will higher interest rates affect the stock market? Mr. Brown said, “We can still have a broad stock market increase even as interest rates rise because the economy is great, consumers have jobs and consumers are continuing to spend. But high interest rates will wreak havoc on the most speculative areas of investing. So, what are those speculative areas?”
- High price-to-earnings ratio stocks
- Real estate and home builders (as the real estate sector hates high interest rates)
- Companies with a weak business plan
- Companies with high debt
- Companies with no profits
- Companies with a recent initial public offering (IPO)
- Small-cap stocks
- Assets built on hope (crypto)
- Companies that heavily depend on highly discretionary consumer spending” (home swimming pools, exotic vacations, premium autos, designer clothes and handbags, gym memberships, etc.)
Please do not invest in the near term in the above industries.
Stock Market Valuation
That was quick! Last month we talked here about “yes, we just entered a bear market”, but now we have had a quick recovery. With all the computer high-speed stock trading, the market seems to go down and back up very quickly. Here is a year-to-date chart of the S&P 500 from Yahoo Finance.
So, what is the lesson? Do not be a short-term trader, but be a long-term investor by using your patience and courage.
The S&P 500 Index closed on May 30, 2025, at 5,911.69. Year to date, the market is up 0.5%.
Prior Annual S&P 500 Performance As Per The Exchange Traded Fund, VOO
2024: +24.98%
2023: +26.32%
2022: -18.19%
2021: +28.78%
2020: +18.29%
2019: +31.35%
Recommended Action for Your Stock Portfolio
Stephany Link, Chief Investment Strategist and Portfolio Manager at Hightower Advisors, said on CNBC on May 22, “The industries to invest in today within the technology sector are AI, cloud, cybersecurity, and data mining.”
This month’s newsletter talks a lot about not investing in “alternative assets”. Alternative assets include private equity, private credit, non-traded REITs, crypto, hedge funds, numismatic coins, and commodities.
Investing for retirement just got a lot riskier for some because several custodians of employer retirement accounts are now offering these ridiculous investments. The sellers of these instruments have run out of potential new customers to pursue, so they are looking at the $12.4 trillion in 401K-type accounts as lambs to be slaughtered.
The 401K giant, Empower, will start allowing private credit and private equity in some of the accounts it administers later this year. What’s wrong with private credit and private equity? Basically, private assets cannot be sold on a daily basis, their daily price or value is subjective, and they are just a volatile as public assets. Also, if an employee plans to put money in these private assets, Empower has indicated they plan to charge 1.6% to 1.0% annually in fees! Now who do you think needs to be slaughtered!
For more specific comments on private credit, see the Bond Market Commentary below.
• Not FDIC Insured • No Bank Guarantee • May Lose Value
Financial Markets Vocabulary
To fully understand our comments in the “Bond Market Commentary” below, please be familiar with these four definitions.
Public Credit - Public credit consists of bonds or other promissory notes held by the public that are registered with the Securities and Exchange Commission (SEC). Trading of these securities can take place within a bond exchange, which is similar to a stock exchange. Public bonds tend to be issued by
- City, county, or state governments (municipal bonds)
- The US federal government (Treasury bills, notes, and bonds)
- Federal government agencies (Federal Home Loan, Farm Credit Bank, etc.)
- Local government districts such as water, sewer, school, or airport districts (revenue bonds)
- Public companies such as Deere, IBM, Proctor & Gamble, Netflix, Duke Energy, etc.
Public debt can easily be bought and sold daily on a bond exchange such as Schwab, Merrill Edge, Vanguard, etc. as public debt is continuously priced during days the market is open. Several companies such as Moody’s and S&P rate public debt from very high quality (AAA to BBB) to junk (BB and lower).
Private Credit – Private credit is utilized by institutional investors by making loans directly to businesses or sometimes individuals who are unable to access borrowing from banks or the public bond market. Typically, private credit tends to be significantly riskier than public credit as the loan is seldom liquid (very difficult to be sold to another investor), the money is frequently tied up for years, and the value of the loan at any time cannot be determined by a third party such as Morningstar, S&P, or Moody’s. The quality of private credit is also unknown. Therefore, private credit is judged to be substantially riskier than public debt.
Sharpe Ratio – The Sharpe ratio is a financial instrument that measures the risk of an investment per unit of the investment’s standard deviation. The calculation can be made over any time period. The formula is (past annual return of an asset minus the return of a risk-free investment (say the US 10-year treasury)) all divided by the asset’s standard deviation over the same time period.
A ratio less than 0.5 is poor.
A ratio between 0.5 and 1.0 is OK.
A ratio over 1.0 is very good.
Mark to Market – Mark to market is an accounting discipline where an asset is valued at its current market price rather than its original cost. By having a valid current price and a history of past daily prices, the price trend can be established. This then becomes one input an investor has to assist in making a buy, hold, or sell decision.
Public credit is marked to market daily, while private credit is very challenging to determine its current value at any given point in time.
OK, Now What Do I Do?
Financial Questions for Engaged Couples
This month, we continue with the second installment of our four-month-long series of appropriate questions for engaged couples. Assuming an engaged couple is not receiving financial counseling prior to getting married from another source, below are our suggested questions.
DEBT AND INTEREST EXPENSE
-
Not counting a home mortgage, what is the maximum annual interest expense you will allow yourselves?
-
What type of debts do you consider OK to have and what type of debt do you expect to never have?
-
How much debt do you both have today? What is your plan to eliminate it prior to getting married?
-
What sacrifices are you willing to make to eliminate debt?
EMPLOYMENT
- Have you both graduated high school?
- Have either of you graduated from college or a trade school? What were or are your majors?
- Do you have jobs today?
- What education, training, skills, or experience do you have to offer to a prospective employer to justify them hiring you?
EMERGENCY FUND
- What type of expenses would it be okay to dip into an emergency fund?
- What is your target balance for your joint emergency fund when it is fully funded?
- How many months will this fund support you if, temporarily, your family has no income?
INSURANCE
- Here are the seven major types of insurance every family must consider having. How do you plan to provide for each?
-
- Home or Renters
- Life
- Auto Long-Term
- Disability Income
- Umbrella Liability
- Medical
- ID Theft Protection
2. How much coverage do you plan for each type?
More questions will be suggested next month.
• Not insured by any bank or government • Subject to risk & possible loss of principal
Leadership
On May 30, Jamie Dimon, CEO of JPMorgan Chase, spoke at the Reagan National Economic Forum at the Reagan Presidential Library in California. Mr. Dimon was asked, “What advice can you offer to American business leaders?”
Mr. Dimon said, “Get out, get out, get out (of the office) and talk to people, talk to clients so you can learn about complaints, competitors, suppliers, employees, shareholders, etc. Take a look at some recent companies: Sears, K-Mart, Digital Equipment Corporation, and Kodak. They all went bankrupt due to:
- Arrogance
- Greed
- Complacency
- Bureaucracy”
“I tell employees ‘don’t put a good foot forward’ but ‘put the truth forward’ to enable company leaders to deal with it.”
When asked, “Is high inflation in our future?” Mr. Dimon responded with, “I think there is a lot of stuff in the future that is inflationary. These are:
1. Our huge fiscal deficits.
2. The whole world is militarizing.
3. Our national infrastructure is in bad shape and needs to be fixed.
4. We have wasted a lot of money on the green economy.”
If Mr. Dimon is right, inflation is headed up. When that happens, the yield on bonds will go up. As the yield on bonds goes up, the price of existing bonds will go down.
Mr. Dimon continued with, “You are going to see a crack in the bond market. I don’t know if it is six months away or six years away, but you are going to see one.”
What is a “crack in the bond market”? Mark believes it is a dramatic drop in the price of existing bonds and a significant increase in the yield of new bonds. If you believe this, it’s time to decrease our bond holdings and increase our holdings of cash, for example, in a high-yield money market account. See “Recommended Action for Your Safest Money” below for our latest advice.
Our Financial Bad Boy This Month
The California High-Speed Rail Project
On April 7, 2025, Jeffrey Gundlach, President, CIO, and founder of DoubleLine Capital, a mutual fund and investment firm, said on CNBC, “In 2008 the light rail plan in California was to be in place by 2020 and run light rail from Los Angeles to San Francisco at an estimated cost of $33 billion. Today it has cost $128 billion and not one inch of track has been laid.”
Overall, the California High-Speed Rail project has become a tragic tale of an extremely poor, government-run infrastructure project that has resulted in massive cost overruns and delays. This is an example of government at its worst.
The Bond Market
Commentary
Jeffrey Gundlach continued his April 7 discussion below for his distaste for “private credit.”
“Private credit is underperforming public credit. There are three reasons why private credit is a bad deal for investors. People defend private credit with the following arguments – all of which have flaws.”
“First, sponsors of private credit use the ‘sharp ratio’ argument. They say, ‘Yes, private credit is illiquid, but it is less volatile than public credit’. Is there a weakness in that statement? Yes, because these sponsors do not “mark to market” their product as frequently as public credit marks to market. Public credit is priced daily while the sponsors of private credit seldom price their offerings.”
“For example, one of DoubleLine’s clients has a boat-load full of private credit purchased outside of DoubleLine. The client has eight managers for their private credit portfolio, and all eight ended up purchasing a piece of a recent private credit offering. In March this year one of these eight managers priced his holdings at 95 and another manager priced the same asset at 8! This is an extreme example but shows there is no common method of determining a real market-based price for private credit.”
“Second, the long–term performance numbers for private credit are better than public credit. But we must remember the old adage ‘past performance is not a guarantee of future results’. Lately private credit has underperformed compared to public credit. So, I worry about projecting the past into the future, especially for an asset class (private credit) that tends to be illiquid.”
“And third, at a recent conference a person (whose firm was promoting private credit) speaking before me said, ‘The beautiful thing about private credit is when markets get volatile, owning private credit lets you ride thru the storm.’ ”
“When public markets experience a sharp decline, it is nonsensical to think private markets are a safe harbor in the storm. Yet I have heard this absurd assertation twice in the past week. They say, ‘Don’t worry, we’re not down!’” That statement is unbelievable!
“The biggest names in private credit are still defending private credit and almost scoffing at the notion that there is a budding problem – that there is a bubble.” Don’t believe them – stay away from private credit.
Recommended Action for Your Safest Money
Our recommendations for an investor’s safest money have changed from last month. We are dropping our recommendation for short-term high-yield bond funds and adding bank CDs, Treasury bills and notes, and high-yield savings and money market accounts. Our recommendations, in no particular order, are:
Our recommendations, in no particular order, are:
- Short-term U.S. Investment-Grade Corporate or Securitized bond funds.
- Bank CDs with FDIC and paying at least 4%. Some banks are paying nothing.
- US Treasury bills or notes.
- High yield bank or brokerage house savings or money market accounts.
- U.S. Savings I-Bonds, which have a max contribution of $10,000 per account per year.
Due to the relatively low return of these investment products, investors should not put 100% or anything close to that in these products. These products are only for an investor’s safest money, or perhaps 5% to 25% of an investor’s total portfolio. These products are credit safe, but they will not provide the growth or income needed to stay ahead of, or even keep up with, taxes and inflation.
Past performance is not a guarantee of future results.
Pop Quiz Answer
What are the percentage contributions for each category below that make up the total US gross domestic product (GDP)?
Answer:
Total manufacturing in the US is 14% of our economy.